When a property is financed, bought, or sold, a record of that transaction is filed in public archives. Likewise, records of other events that may affect the ownership of a property, like liens or levies, are also archived.
When you buy title insurance for your property, a title company searches these records to find - and remedy, if possible - several types of ownership issues. First, the title company searches public records to determine the property's ownership status. After this search, the underwriter will determine the insurability of the title.
For a one-time fee paid at closing, title insurance can protect your property rights for as long as you or your heirs own the property. This purchase protects you from:
Unpaid property taxes
Child support liens
Missing heirs who could claim the property belongs to him or her
Missed easements or rights of way that could limit your use of the property
Owner's title insurance protects the buyer from issues that might emerge after the close of the sale. Issues may include human error, unpaid liens, forged documents, undisclosed or missing heirs, or incorrect legal descriptions
Most lenders usually require a loan policy when they issue you a loan.
The loan policy is based usually on the dollar amount of your loan. It only protects the lender’s interests in the property should a problem with the title arise. It does not protect the buyer. The policy amount decreases each year and eventually disappears as the loan is paid off.
A policy premium is based on the purchase price of the property, which is determined by the value of the land plus any improvements. The cost of a title insurance policy varies from half to one percent of the purchase price.
Title insurance industry practices vary due to differences in state laws and local real estate customs. Who pays for the owner’s policy varies by region - on the East Coast, the buyer typically pays.